Saturday, February 17, 2018

Marx Versus Classical Economics

Marx can be read as both a continuation and a critique of classical economics.
A not-too-radical reading might emphasize his claim to find distinctions
in economic theory glossed over by classical economists such as
Adam Smith and David Ricardo.
According to Marx, classical economists (as opposed to vulgar
economists such as Frédéric Bastiat,
Jean-Baptiste Say, and
and Nassau William Senior) penetrated beneath
surface phenomena to reveal the anatomy of capitalism.
A more radical reading questions the soundness of the classical
theory, while historicizing its emergence as a
necessary illusion. The spokesmen for
the emerging and progressive capitalist class
sought for a theory justifying their
opposition to aristocrats and
the ancien régime. And classical
economics was that theory.

This post presents three distinctions offered in the
first, less radical reading. Marx had great respect
for classical economists. I do not think he
was always fair to them, insofar as he
accused them of error by reading muddle
into them for not seeing his new ideas.
In this post, I do not document this charge
by citing specific passages in, for example,
Theories of Surplus Value.
So more work would need to be done to extend
this from a mere blog post.
(This 8 January 1868
letter
from Marx to Friedrich Engels is apposite here.)
I also put aside the transformation problem here.

First distinction: between labor and labor power.
Marx distinguishes between the capability of a member of
the proletariat to work under the direction or control
of a capitalist and the work done under that direction.
The former is a commodity, labor power. The latter
is the use value of that commodity, that is, labor.
Both Marx and Ricardo treated labor power, like
all commodities, as representing a certain
quantity of embodied labor, namely, the labor
value of the commodities necessarily consumed by the
laborers, taking as given certain conventions
about the hours and severity of work,
the standard of living of the workers,
the size of their families, which members
were expected to work, and so on.

Without this distinction, Ricardo writes about such
nonsense as the labor value of labor. (I need a
direct quote here.) Marx argues that Ricardo is
also unable to explain why capitalists are
able to regularly generate profits. I suppose
one could expand on this to analyze some of
the evident difficulties in understanding
Ricardo.

Second distinction: Between surplus value
and profits, rent, and interest.
Surplus value, for Marx, is the value
added by labor not paid out in wages.
It is an abstraction, akin to
(some of) Ricardo's profits before
his chapter on rent. Marx focuses
on surplus value in the first volume
of Capital.
Surplus value is manifested at a more
concrete level in the form of profits,
rent, and interest on financial instruments.
Would Ricardo's work be better if he
had a separate label for surplus value?

Third distinction: Between
prices of production and labor values.
William Petty, Adam Smith, and David Ricardo
all have a theoretical conception of market
prices and natural prices. Natural prices
are centers of gravity, in some sense, around which
market prices fluctuate. Marx offered a
trichotomy of market prices, prices of
production, and labor values.
The price of production, sometimes called
the cost price, is Marx's equivalent for
Smith and Ricardo's natural value.
Marx can criticize passages in
the classical economists for confusing
prices of production and labor values.
(A further confusion is that between
the labor commanded by and the labor
embodied in a commodity.)

I conclude with noting some complications not to be found in
the above schematic divisions. In speaking of the labor
value of labor power, I am implicitly assuming that all
wages are consumed, and that wages are paid in commodities.
But some workers, especially those deemed skilled, are
able to save, even over and above what they need for a
conventional retirement. And wages are paid in money,
with the general level of prices of wage goods only
determined after a bargain with workers has been
struck.

In talking about surplus value, I have ignored
the possibility of profits on alienation.
This case has to be considered in
a complete taxonomy of capital.
Traders
and speculators look for the possibility of
bargains, of buying low and selling high.
Both classical economists and Marx were aware
of this possibility.

In speaking of labor values and prices of
production, I seem to be assuming that all firms
in an industry use the same processes and have the
same costs. But Marx looks at variations in such
processes. (I am never sure whether the processes
that Sraffa takes as given should be the best practice
or an average process. Perhaps, which is correct might
vary among industries.) Finally, one might add a fourth
distinction in Marx's theory of absolute rent, which
is not to be found in the classical economists.

Hello Robert, your comments are precise, as always. However, I think that the heritage of Marx is a mess. For instance, The Capital is partly written by Engels, who lacks the quality of Marx. I am not certain who really wrote "Theories of surplus value". Moreover, the LTV is perhaps less important than the phase model of Marx (historical materialism), at least with respect to politics. And the phase model reminds of the German Historical School. Moreover, the theory of Marx is merely a narrative. He does not supply a validation by means of statistical data. Anyway, I guess that his entire theory (including the LTV) can not be verified. Perhaps our time is better spent on the works of other economists.